COVID-19 and Demurrage, Detention and Related Shipping and Transportation Fees
As United States businesses muddle through the third week of widespread “shutdowns” and “social distancing” with the goal of curbing the COVID-19 Pandemic of 2020 (“Pandemic”) it is clear that the Pandemic will disrupt the worldwide economy in a manner likely not seen since World War II or the Great Depression.
The present Pandemic seems to most closely parallel the 1918 Flu Pandemic better known as the “Spanish Flu”: That pandemic was among the most deadly in human history, and had a significant economic impact. Regardless, it goes without saying that the world in 2020 is a much different place economically and logistically (and politically) compared to 1918.
Rapid industrialization in Asia since the end of World War II transformed it into the world’s hub for manufacturing. In the United States (U.S.), the combination of an interstate highway system, mature and streamlined freight rail system, deep water ports on both coasts and in the Gulf, jet air cargo and freight, intermodal containers, and free trade agreements allow imported goods to freely circulate throughout the world’s largest economy (U.S.) and similarly also allow for the export of billions of dollars of goods from the U.S.
In order to import and distribute (and also export) these physical goods, in an economical and, hopefully, profitable manner, businesses rely upon common carriers, terminal operators, equipment providers, and related parties in order to utilize these various transport methods. Depending on the nature of the goods, different forms of intermodal containers and/or cargo or freight ships, air cargo unit load devices (ULDs), railcars, truck trailers, and other varying equipment, most of which have been standardized over the sixty (60) years, are utilized.
Not varying in the import and export of goods are issues that can arise when there is a significant disruption in business, international affairs, the labor market and/or other similar issues. For example, in late 2014 through 2015, longshoremen at ports on the west coast of the U.S. initiated the West Coast Ports Slowdown due to a labor dispute over wages, thereby disrupting the import and export of goods.
That disruption came in the form, among others, of trucking companies sent to pick up intermodal containers from the Port(s) and transport them to the warehouse of the businesses and/or distributors importing the goods waiting for hours at the Port(s) gate, sometimes only to be sent home. Then, even after getting through the Port(s) gate, the shipping terminal operator would refuse to release the intermodal container(s) unless the trucking company paid the accumulated demurrage fees. Similarly, a terminal operator may refuse to accept a container being returned to the Port(s) unless the trucking company pays accumulated detention fees. Meanwhile, the party shipping the goods deals with the resulting delays as well as the discussed fees.
Demurrage fees relate to cargo when it is located in the container or “shipping equipment”. The day a container is removed or discharged from the ship, the party receiving goods generally has seven days to pick up the container from the port. If a party receiving exceeds this deadline, then they will incur demurrage fees. For example, if a container is removed from a ship on November 10, the party receiving the goods will have until November 16 to pick up the container without incurring demurrage fees.
Detention fees relate to equipment while the container is empty after unpacking or before packing. A party shipping goods usually has five days (or a different period of time) to pick up the container, load it, and return it to the carrier. If the party shipping goods exceeds this time period in returning the container, then they are liable for detention charges for each day that exceeds the five-day period. Similarly, if the party receiving the goods takes more than the number of days allowed by the line to return the empty container, there may be additional detention charges.
While in practice, the trucking companies pay the respective demurrage and detention fees, they ultimately are passed on to the parties shipping the goods. During the West Coast Port Slowdown, marine terminal operators collected thousands of dollars of such fees on beneficial cargo owners (BCOs) (parties shipping goods) via trucking companies and/or other parties acting on their behalf, resulting in litigation.
Legally, the rights of the party shipping goods appears to vary by state and/or jurisdiction. For example, in California, Section 22928 of California Business and Professions Code prohibits marine equipment providers and/or terminal operators from charging demurrage and detention fees to parties shipping goods when a terminal gate is closed, “[O] a weekend or holiday, or during a labor disruption period, or during any other period involving an act of God or any other planned or unplanned action that closes the truck gate.”. Moreover, there also are variations in terms of bill(s) of lading, common carrier agreements, and other private agreements and also the issue of reconciling all of the above with federal law regarding interstate and international shipping.
Regardless, the COVID-19 Pandemic already has and will likely continue to have negative impact on parties importing and exporting goods to the U.S resulting in demurrage, detention and related. The facts and legalities will obviously vary depending on the types of goods being transported and method of transport. Nonetheless, it seems inevitable that disputes will arise. At a time when many businesses are already seeing a significant decrease in revenue resulting from decreased demand for goods and services, the impact of such fees on businesses shipping goods will likely be significant.
For parties whose businesses depend on shipping goods within the U.S. or internationally, it is best to, at minimum, be concerned about the issues that could and will likely arise during the COVID-19 Pandemic. And accordingly, closely monitor ingoing and/or outgoing shipments as the parties hired to transport goods to and from the transportation terminals, terminal operators, and equipment providers.
This Pandemic is unprecedented for the “Modern Economy”, and accordingly, it seems as though many of the adaptations by the business sector to it are being done on an ad-hoc or “trial by fire” basis out of necessity. Regardless, seeking advice and/or counsel from parties who specialize in shipping and transportation, and/or attorneys with backgrounds and experience in dealing with issues that arise in shipping and transportation could save businesses thousands of dollars in different fees, including litigation, by preventing delays in shipping, and/or objecting from the start or refusing to pay improperly imposed demurrage, detention and related fees.
While an international crisis can lead to wonderful examples of benevolent human behavior and kindness, it also can lead to some of most cynical, selfish, unethical, and even illegal and criminal behavior. Accordingly, businesses, particularly closely held and small- and medium-sized companies, should be cautious and/or “on guard” about shipping and transportation issues that can and will arise during this Pandemic.
If you or your company are shipping goods and concerned about the delay issues discussed above, JFM Law is offering free consultations to discuss legal issues arising from interruptions associated with the COVID-19 Pandemic. In addition to practicing law in Washington State, JFM’s Law’s founder, Joel Murray, is connected with attorneys throughout the U.S., and also can refer you to an attorney who could be of assistance on such a matter.